Gold opens September with reduced volatility

In the Lead: “Hey, Hey What Can I Do”

Something else that dropped nearly off the radar map of investors last month was…the effect of the S&P’s downgrade of the US. In fact the S&P’s action was soundly rebuffed by the investing crowd as it piled heavily into…Treasuries (much to the chagrin of PIMCO which had bet heavily against them). To be fair, those instruments also rallied on the back of perceptions that the Fed might have to do “something” (starts with the letter "Q”) about the slowing economy. Such fears shaved nearly $5 trillion from the value of global markets last month.

Investors are aware that, this time around, they cannot count on the BRICS to keep the global economy out of the bog as they did in the scary days of 2007-2009. In fact, at least one of the BRICS in the global economic wall (China) is actively pursuing an application of the brake pedal as it tries to rein in inflation and pop various emergent domestic bubbles. This is one of the signals being heeded by commodity traders out there; they see that the demand for “stuff” from the BRICS is ebbing, as reflected by the 54% drop in shipping container rates over the past year, just for example. Reuters finds that if we gauge the world’s economic health by PMI figures and by manufacturing activity, the diagnosis might, at best, be “guarded.” Simply stated, one does not consume consumer goods at a time when they are mainly in a mood to consume…Xanax.

Still, the picture is not all that clear-cut, especially when taking a narrower, regional as well as sectorial look at various economic conditions and metrics. For example, the orders that were placed with US factories in July were the highest in four months; a bump of 2.4% that surprised hitherto gloomy economists. US employers added 91.000 jobs in August. Even the thorny problem of joblessness (in the US) appears to be mainly a question of where one finds him or herself.

You say you “prefer” 6% unemployment (a number quite near the Holy Grail of “full employment”) levels? Simple: move to Vermont or to Oklahoma. If you focus on certain metro areas in Michigan or Nevada, well, you might just be staring at 14% unemployment. As we noted the other day, President Obama’s (now delayed, courtesy of good old Mr. Boehner) speech on jobs will be at least as important for Americans to watch as the kick-off of the NFL season. Some sneaking suspicion/doubt remains as to what it is they will actually watch on the telly than night….

This morning’s reading of the most recent initial jobless claims filings showed a decline of 12,000 in such applications for benefits. Yesterday’s reading of the Chicago area business sentiment came in at 56.5% for the month of August; a number quite a bit better than had been anticipated. Over in the Old World, that same kind of indicator showed a reading of 49 (tipping into contraction) as it bounced along a two-year low level.

The exceptions to this shrinking indicators case were the manufacturing activity levels in Germany, Austria, and the Netherlands. As we said, this is a spotty picture, and one that is much dependent on where one looks, and at what they look. The weak eurozone data helped spark a sell-off in the euro (to under $1.43) this morning and boosted the US dollar to 74.53 on the trade-weighted index.

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